Statistics and the Law: Proving Lost Profits

The existence and amount of a firm's lost profits are key elements in most commercial damage cases. Practitioners must be able to demonstrate to the trier of fact the appropriateness and effectiveness of the methodology employed to calculate lost profits.' While practitioners generally employ experts to perform a lost profits analysis, it is essential that practitioners understand the conceptual relationship between the legal standard and the methodology employed. In Texas, the legal standard requires the use of a methodology that goes beyond the mere assertion that the plaintiff has sustained a loss. Given that standard of proof, the purpose of this article is to demonstrate that there is one superior methodology for determining lost profits: multivariate regression analysis.